Paying a supplier you have never met, in another country, is a leap of trust in both directions. Send money too early and you carry the risk; ask the supplier to ship first and they carry it. The payment method you choose decides who is exposed and how much. This article compares the main import payment terms and shows you when each one fits, so you protect your cash without killing the deal.
The core tension
Every payment method sits on one axis: your cash risk versus the supplier’s shipment risk. A brand-new supplier wants security that they will be paid. You want security that the goods will actually arrive and match the order. No single method eliminates both risks – it just decides where the balance sits and who pays a bank to hold the middle.
The main methods
Telegraphic transfer (T/T)
A bank wire, usually split – for example a deposit up front and the balance before or after shipment. It is cheap and fast, but a full advance payment leaves you fully exposed until the goods clear.
Letter of credit (L/C)
Your bank promises to pay the supplier once they present documents that exactly match the credit’s terms – typically a clean bill of lading, invoice, and packing list. The bank, not you, controls release of funds. It shifts risk to a neutral, document-based process, but it is slower and costs bank fees on both sides. It is governed by the ICC’s UCP 600 rules.
Documentary collection (D/P and D/A)
Banks handle the documents but do not guarantee payment. Under Documents against Payment, the buyer pays to receive the shipping documents; under Documents against Acceptance, the buyer signs a promise to pay later. Cheaper than an L/C, but with less protection.
Open account
You receive the goods and pay later, on agreed terms such as net 30. This is the most favorable for you and the riskiest for the supplier, so it is normally offered only after a track record is built.
Escrow
A third party holds funds and releases them when the buyer confirms receipt. Useful for smaller first orders on some platforms, but less common for full container shipments.
Comparison at a glance
| Method | Who carries more risk | Cost | Best for |
| T/T advance | Buyer | Low | Trusted suppliers, small orders |
| L/C | Balanced (bank-controlled) | High | Large first orders, new relationships |
| D/P collection | Shared | Medium | Some trust, moderate value |
| Open account | Supplier | Low | Established, repeat suppliers |
When to use each
Match the method to how much you trust the counterparty and how much money is on the line. A small sample order with a vetted supplier rarely justifies L/C fees – a partial T/T is fine. A first six-figure order with a supplier you found online is exactly where an L/C earns its cost. As orders repeat and trust builds, you can move toward open account and free up cash.
Example scenario
You place a USD 80,000 first order with a new factory. They ask for 100% T/T in advance. That would leave you fully exposed. A reasonable compromise: 30% deposit by T/T to start production, and the 70% balance under an L/C released against a clean bill of lading. You limit your unsecured exposure to the deposit, and the supplier gets a bank-backed guarantee for the bulk. Both sides can say yes.
Common mistakes and how to fix them
- Paying 100% in advance to a new supplier. Fix: cap the unsecured portion at a deposit; secure the balance.
- Sloppy L/C documents. Under UCP 600, banks reject on the smallest mismatch – a misspelled name, a wrong date. Fix: draft the document requirements carefully and have the supplier confirm they can meet them before the L/C is issued.
- Confusing an L/C with a quality guarantee. An L/C pays against documents, not against good products. Fix: pair it with a pre-shipment inspection clause.
- Jumping to open account too soon. Fix: earn it over several clean orders, not one.
Action checklist
- Decide your maximum acceptable unsecured exposure for this order.
- Match the method to trust level and order value.
- For L/Cs, list document requirements precisely and confirm the supplier can comply.
- Add a pre-shipment inspection condition when quality risk is real.
- Keep wire details verified out-of-band to avoid payment fraud.
- Revisit terms after each successful order.
Conclusion and next step
The right payment term is the one that limits your exposure while still letting the supplier feel safe enough to ship. Your next step: for your next order, write down the dollar amount you are willing to lose if things go wrong, and let that number choose the method for you.
Frequently asked questions
Is a letter of credit always safer than a wire?
Safer in the sense that a bank controls payment against documents, but it only protects you if the documents are specified correctly and inspection is arranged separately. It also costs more and moves slower.
What deposit percentage is normal for a first order?
A split such as 30% deposit and 70% balance is common, but there is no fixed rule. The point is to keep your unsecured portion at a level you could absorb as a loss.
Can I avoid bank fees with escrow instead of an L/C?
Sometimes, for smaller orders on platforms that offer it. For large container shipments, L/Cs and documentary collections remain the standard because they integrate with shipping documents.
How do I protect against payment redirection fraud?
Verify any change in bank details through a separate, known channel – a phone call to a known contact – never by replying to the email that requested the change.
References
- International Chamber of Commerce – UCP 600, the rules governing documentary letters of credit.
- International Chamber of Commerce – Incoterms rules, which define who pays for each stage of delivery.